Jason Kenney: Alberta must act on price differential

A pumpjack works at a well head on an oil and gas installation near Cremona, Alta.Jeff McIntosh / THE CANADIAN PRESS

Alberta is facing an economic emergency requiring immediate action.

We have struggled through four difficult years. Over 180,000 Albertans are still out of work. Unemployment has climbed for six straight months. We have seen near record bankruptcies and insolvencies. People have lost their homes, and in too many cases, their hope.

But unless we act now, we could be on the verge of another major round of job losses. Many small and medium-sized firms would quite likely cease to exist.

That’s because we are now virtually giving away an asset that belongs to all Albertans — our oil and gas.

The price we are getting for Albertans’ oil is at its lowest point in over 35 years. Wednesday the market price for most of our oil — Western Canada Select — was $12 (USD) per barrel — a fraction of the cost of a bottle of water.

This unprecedented price differential is costing our economy up to $100 million a day. It will cost the Alberta government over $7 billion a year, ballooning Alberta’s annual deficit from $8 billion to $15 billion.

Industry leaders tell me that they are burning through cash because the cost of producing and shipping our oil is higher than the price they get for it. That means cutting capital budgets and cancelling drilling over the winter, which would be a blow to service companies and their employees across Alberta.

If this giveaway of Alberta oil continues, we could face significant layoffs in an industry that is already reeling.

I have called on Alberta oil producers to voluntarily reduce production to deal with this crisis. Many have acted, cutting production by some 200,000 barrels per day. But a small number of companies are making big profits by shipping super cheap Alberta oil to U.S. refineries, and are not willing to follow suit.

That is why I am calling on the Alberta government to curtail temporarily 10% of Alberta’s oil production, with an exemption for small producers, and a sunset clause so such limits don’t become permanent. Industry leaders are clear that doing so will not result in job losses, but continuing the current fire sale on Alberta oil will put thousands of jobs at risk.

Experts predict that this cut in production would result in an immediate increase in the price we get for Alberta oil, and within a few weeks would cut in half the huge glut of 35 million barrels sitting in storage, bringing our market back to balance and reducing the price differential from the current $40 per barrel to about $20 per barrel. Additional pipeline and rail capacity is scheduled to come on stream next year, meaning that production limits will no longer be necessary by late 2019.

I am a free market conservative, and I do not make this recommendation lightly. But after extensive consultation, I now believe this short term action is necessary to prevent what one expert calls “a financial catastrophe.”

The crisis in our energy industry is largely the result of bad government policy, not bad business decisions. The Trudeau government killed Northern Gateway and Energy East, bungled Trans Mountain, surrendered to Obama’s veto of Keystone XL, imposed a West Coast tanker ban, and is now ramming its “No More Pipelines Law” — Bill C-69 — through Parliament. Given that governments created this mess, short-term, limited government action is justified to prevent even more damage to jobs and our economy.

A small reduction in oil output is hardly without precedent. In fact, government rationing of oil production was a key part of the development of Alberta’s energy industry, from the Manning government following the Leduc oil discovery in 1947, through Peter Lougheed’s response to the National Energy Program in the 1980s.

Alberta’s oil and gas belongs to the people, not to the companies that extract it.

Government must not allow this public asset to be given away. Nor can we allow further massive damage to jobs and livelihoods in our province.

Short-term action to stop the current fire sale of Alberta oil is needed, but will not resolve the bigger strategic challenge we are facing of getting our energy to global markets. That’s why the United Conservative Party will make our fight-back strategy a key part of our plan to reignite Alberta’s economy. It is time that we moved from being defensive and apologetic about our role as responsible producers of energy. But first we need real leadership to defend Alberta jobs, today.

Jason Kenney is leader of the United Conservative Party and MLA for Calgary-Lougheed.

This Week's Flyers

Comments

We encourage all readers to share their views on our articles and blog posts. We are committed to maintaining a lively but civil forum for discussion, so we ask you to avoid personal attacks, and please keep your comments relevant and respectful. If you encounter a comment that is abusive, click the "X" in the upper right corner of the comment box to report spam or abuse. We are using Facebook commenting. Visit our FAQ page for more information.